The AES Corporation is holding a financial review call to discuss their fourth quarter and full year 2023 performance. The call will be led by Susan Harcourt, Vice President of Investor Relations, with contributions from CEO Andres Gluski and CFO Steve Coughlin. The company will be making forward looking statements and will provide reconciliations between GAAP and non-GAAP financial measures. The call will focus on the company's 2023 strategic and financial performance.

In 2023, the company had its best year ever, meeting or exceeding all strategic and financial goals. They signed a record number of PPAs and are on track to sign even more in the coming years. Despite challenges in the industry, the company's business model remains strong and they are raising their expected growth rates for EBITDA and EPS. The backlog of projects with signed PPAs is significant and on track for completion.

The speaker discusses the company's success in serving corporate customers, particularly in the technology sector, and their focus on providing innovative renewable energy solutions. They also highlight their strong track record of delivering projects on time and on budget, and their scale and pipeline to address the growing demand from data centers. This has led to increased returns across their renewable portfolio, resulting in an increase in their U.S. business.

AES is seeing strong market demand and is able to be selective in the projects they build, focusing on those with the best financial benefits. They have a track record of completing projects on time and on budget, which is highly valued by customers. They have secured contracts for all major equipment and financing, and have a strategic partnership with Fluence for storage components. In 2024, they expect to add 3.6 gigawatts of new projects, including 2.2 gigawatts in the U.S. In terms of utilities, AES achieved important milestones in 2023 at their U.S. utilities, including a new regulatory framework at AES Ohio and a unanimous settlement for their first-rate case at AES Indiana. These developments will drive future growth, decarbonization, and improvement in customer service.

Both utilities are experiencing high growth rates and have a large amount of investments already approved by regulators. AES Ohio is investing in transmission assets and has one of the fastest growth rates in the country. AES Indiana has regulatory approval for renewable projects and is focused on customer affordability and timely recovery of investments. The company also exceeded its asset sale proceeds target last year.

In the sixth paragraph of the article, the speaker discusses the success of their business transactions and achieving their asset sales goal. They then introduce the CFO, Steve Coughlin, who will discuss the company's 2023 results, capital allocation, and 2024 guidance. The company had a record-breaking year in 2023, meeting or exceeding all of their strategic and financial targets. Adjusted EBITDA and EPS were both higher than the previous year, driven by contributions from new renewables projects and the recovery of prior year's purchase power costs. The results are discussed in more detail in the following slides, starting with the Renewable SBU.

In 2023, AES saw higher adjusted EBITDA at its renewables, utilities, and new energy technologies SBUs, driven by new projects, higher margins, and improved results at Fluence. However, lower adjusted EBITDA at the energy infrastructure SBU was due to various factors. The company allocated its $3 billion of discretionary cash towards growth investments, dividends, and debt repayment. Overall, AES had a strong financial performance in 2023.

The company has provided guidance for 2024, with an expected adjusted EBITDA of $3.6 billion to $4 billion, driven by new renewables projects and rate-based growth at their U.S. utilities. They also expect a 9% increase in adjusted EPS and are on track to achieve their long-term growth target through 2025. However, there will be an 8% headwind from asset sales. The company's construction program is evenly spread throughout the year, with 40% of earnings expected in the first half and 60% in the second half. They also have greater visibility into their expected construction completion throughout the year.

The strong market position of AES in providing tailored solutions to corporate clients has resulted in higher returns on their renewable projects. As their renewables business continues to grow, they expect to see further productivity and scale benefits. This will lead to an increase in their expected long-term adjusted EBITDA and EPS growth rates. In terms of their 2024 parent capital allocation plan, they expect to generate significant free cash flow and net asset sale proceeds, while also managing their debt exposure and interest rate risks.

The company plans to invest $2.6 billion in new growth, with majority going towards renewables and utility rate base. They will also allocate $500 million to shareholder dividends and will not issue new equity until 2026. They expect to invest over $7 billion in subsidiaries to grow their businesses and will continue to increase dividends by 2-3% annually after 2024. The company had a successful year in 2023 and expects to have another record year in 2024. They are focused on achieving their strategic priorities and creating value for shareholders.

The speaker, Andres Gluski, summarizes the company's successful year in 2023, meeting or exceeding all strategic and financial objectives. They have seen strong demand for renewables, particularly from data centers, and have increased their expected growth rates for adjusted EBITDA and earnings per share through 2027. The company has also had significant success with asset sales, giving them confidence in their long-term funding plans. In response to a question, Steve Coughlin explains that the flat EBITDA guidance for 2024 is due to the timing of asset sales, which have been ahead of expectations and are offsetting growth from other areas.

In this paragraph, an analyst asks about the company's plan for asset sales and its potential impact on their debt issuance and leverage targets. The company's CFO responds by stating that their top priority is achieving investment grade status and that they have built in cushion and flexibility into their metrics. They also mention that the quality and duration of their cash flows are improving, which could potentially offset any dilutive impacts. The CFO also mentions that the company has multiple ways to achieve their asset sale target and that their higher return levels are a result of this improved cash flow.

Andres Gluski discusses the factors that have contributed to the higher return levels in the renewables business. He mentions that they are seeing higher returns on prior PPAs, positioning themselves in markets with a shortage of good renewable projects, and becoming more efficient in their construction and development processes. He also notes that they have been successful in securing deals with large corporate customers who have a strong demand for renewable energy.

The speaker discusses the demand for clean energy in various markets and the company's ability to meet it. They mention Chile as a market with a shortage of projects and strong customer demand. The company has seen expected growth in both utilities and renewable sectors, leading to an overall higher growth rate. The speaker also addresses a question about the mix of EBITDA contributions across different businesses, stating that it has shifted due to the raised growth expectations.

The speaker discusses the company's plans for growth in the renewable energy sector, stating that the mix will be slightly more focused on renewables due to higher returns. They also mention a shrinking of their energy infrastructure due to a coal exit plan. The speaker emphasizes the importance of maximizing shareholder value rather than just pursuing growth for growth's sake. They also mention targeting market segments that provide the best financial benefits.

The company is heavily focused on the corporate and data center segments, with a growing demand for artificial intelligence. They have strategically positioned themselves and have a highly knowledgeable board, with a focus on returns and value per share. The EBITDA growth rate has increased, not from tax credits.

In 2023, the company saw a significant increase in construction, but they do not expect this rate of growth to continue. They have been signing over 5 gigawatts of new PPAs per year, but the actual amount of projects entering commercial operation in 2024 is expected to remain relatively flat. This is due to project timing and the inclusion of a transfer project in their signings.

The company is not signaling anything with their project timing, and they are confident in commissioning them on time and on budget. They have secured 100% of the major equipment and 80% is on site. They expect a more steady state of growth, with 40% of earnings in the first half and 60% in the second half. They are also working to catch up to the amount of PPAs they are signing. The company's FFO to debt ratio is solid and expected to improve in the future, as they have a strong cushion and amortizing debt.

The company is not seeing any degradation in the performance of existing assets and is actually seeing better returns than forecasted. There are a few assets that have been extended through 2027, which will provide both operational and financial benefits.

The $750 million EBITDA reduction from the coal exit plans will be spread out over several years, avoiding a significant drop. The increase in EBITDA will primarily come from higher returns on renewable projects and productivity and scale benefits. The company still plans to exit coal by the end of 2027, but may delay slightly due to the need for coal plants for system stability. The company does not see a disadvantage to pursuing tech clients if nuclear power becomes a popular option, as there will likely always be a demand for renewable projects in key markets.

The speaker discusses the current state of nuclear power and its potential role in addressing climate change. They mention the challenges and uncertainties surrounding nuclear power, including its high cost and the difficulty of replacing renewable energy with it in the near future. They also mention the strong demand from corporate clients for clean energy solutions, such as data centers, and the potential for higher returns on these projects. However, they do not provide specific details on individual projects.

AES has established itself as a dividend payer and has been consistently growing its dividend at a rate of 4 to 6%. However, with the company's success in the renewable space and utilities position for growth, they have decided to lower the dividend growth rate to 2% to 3% from 2025 onwards. This decision was made after thorough analysis and consideration of capital opportunities. The 2024 tax credit guidance of $1 billion does not include any timing or one-time factors.

The speaker discusses the expected growth of tax credits as the company adds more renewable energy projects. They mention that not all credits are recognized in the first year and that the transfer of credits is driving the value higher. The company is also benefiting from the energy community adder and domestic content requirements. The speaker emphasizes that the credits are cash and earnings, with a significant portion being received upfront. The IR team will be available for follow-up questions.

The operator thanks the participants for their participation and informs them that the call has ended. They can now disconnect their lines.

This summary was generated with AI and may contain some inaccuracies.